Get Ready for a New Round of Inflation and a Major Reduction in American Business Exports
Tariffs are a tax on consumers in the form of higher prices for imported goods and, hence, inflationary. Broadly applied, tariffs are not economically sustainable.
Right-wing Republicans seem willing to overlook all of the issues with our president-elect. I am not. But, I also do not fully side with Democratic policy either, because there is much that the Democrats stand for that I don't agree with. The Democrats lost this election because they didn't listen to the biggest concerns of the American people. I hope that Trump doesn't do the same thing to start his second administration. At the bottom line, there is one thing that people like me dislike most about president-elect Trump. And that is his lack of character, and his apparent disregard for the Constitution and the Rule of Law.
That said, I think we all need to give him a chance now and see what he does. But the leash will undoubtedly be short and, as soon as he goes “off the reservation” constitutionally or acts in a legally or constitutionally questionable manner, there is going to be a lot of backlash.
Independent of these fundamental concerns, many Americans also worry that his trade policies will blow up the national debt, as they did during the first Trump presidential term. While playing to the populist fears of many Americans, there are valid economics-based arguments for why his proposed tariffs will lead to a new round of inflation, a potential net reduction in American exports, and a new wave of supply chain issues that led us into the last recession.
The Biden administration did some great things with regard to investing in new American industry and fixing our aging infrastructure, not to mention bringing manufacturing back on-shore to the US. For many Americans, the problem with Biden's infrastructure bill was all the “pork-belly stuff” that the were thrown into the final infrastructure bill which had little or only tenuous connections with infrastructure. The Republicans were right to push back on that. I suspect that many Americans hope that president-elect Trump will keep some of those things and build on it.
The broad application of tariffs has the potential to reverse many of these successes. It's pretty clear what will happen if president-elect Trump introduces wide-ranging tariffs on China, Mexico and Canada. Prices will rise to the end consumer (because, in the end, THEY pay the tariffs not China, Mexico, or Canada) and, because of that, inflation will go back up. As Mark Zandi, chief economist at Moody's has stated: "It's a tax on consumers in the form of higher prices for imported goods." "It's inflationary." Tariffs, when applied broadly as president-elect Trump seems to intend, are not economically sustainable.
Consider what is likely to happen to consumer prices if broad tariffs are enforced on China, Canada and Mexico.
- Most of our electronics, clothing articles, a great deal of machinery and medical appliances, and many automotive parts are imported from China. Think about smartphones, computers, lithium-ion batteries, toys, and video game consoles, among others. About 27% of those types of products are imported into the US from China.
- Much of our lumber, concrete, and other construction materials are imported from Canada — not to mention mineral fuels, oils, and distillation products as well as machinery, nuclear reactors, and boilers. Canada also produces many vehicles for domestic US manufacturers which are imported into the US after manufacture.
- A large fraction of our fresh produce, cooking staples, and many automobiles and components are imported from Mexico as are optical, photo, technical, and medical apparatus, furniture, beverages; iron, steel and aluminum products, and clothing articles.
Not only are the prices on all these products going to increase in the face of tariffs, but downstream economic markets will also be strongly affected. For example, the cost of auto insurance will likely go through the roof, since many of the repair/replacement parts for vehicles on the road come from overseas.
Most importantly, it is not only imports that are in-play here. In the face of broad-based tariffs enacted by the US, virtually all of the countries that would be impacted by those tariffs would, of course, immediately establish retaliatory tariffs on products that the US exports. And those numbers are staggering:
- In 2022, the United States exported $154 billion in goods to China (7.5% of total U.S. global exports)
- In 2022, the value of US exports to Mexico was $324.3 billion (15.7 percent of overall U.S. exports in 2022)
- In 2022, the United States exported $427.7 billion in goods and services to Canada (17.3% of the total U.S. exports)
Canada, Mexico and China combine for over 40% of the total US exports. Domestic companies that export products will face much higher prices for their products in overseas markets which will cause a dramatic loss in revenues. Off-shore companies that are importing US products will seek alternate supply sources as their governments apply retaliatory tariffs. This, in turn, will damage US business trade and cause higher unemployment in these US industries.
Tariffs are a tax on imports, and they will raise prices for households and, especially, for businesses that rely on imported inputs to make their products. Tariffs are regressive taxes and will, therefore, impact lower- and middle-class households far more than they will affluent Americans. The 2018–19 tariffs nearly always meant that, including the tariffs, U.S customers paid higher prices for the affected imported goods—in fact, prices that were higher by the full amount of the tariff. Our 46th president would be making a great mistake, as he did in his first administration, if he goes out of his way to anger some of our closest allies in the world.
Tariffs on imports not only reduce the demand for imports, they also discourage exports — because of the likelihood of retaliatory tariffs in response to the new administration’s actions. As domestic resources are used to produce goods that were previously imported, resources are drawn away from export industries. While one might argue that increased labor force utilization might fill the resource gap, Trump’s plans to deport unauthorized immigrants will actually significantly reduce the size of the labor force, making that virtually impossible, especially when unemployment is at very low levels, as it currently is. Experience shows and economists generally agree that tariffs lead to persistently higher prices for customers. The net effect of Trump’s planned tariffs will likely be a significant impact on US production in export-relevant business sectors, as well. It will also cause a re-allocation of labor resources and upend supply chains.
The tariffs Trump is proposing will apply to more than eight times more imports than his last presidential term, resulting in a much bigger impact on prices as well as the impact on US exporters who will be facing retaliatory tariffs and are losing sales abroad. One of the best examples of this is how the Trump administration was forced to spend $28 billion on aid to farmers during his last trade war to compensate them for the retaliatory tariff actions by the Chinese in response to US tariffs on their goods. The repercussions of these tariffs will be felt by every company that sells imported goods, by every company that uses imported inputs to run its business, and by every consumer in the US. Exporters will find fewer profitable markets for their products, due to the retaliatory tariffs, as their exported products are displaced by competitor foreign corporations. Consumers always seek lower cost products. For these reasons (among others), Trump’s trade policy plans are economically unsustainable.
https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.cnbc.com/2024/11/06/here-what-president-elect-trumps-tariff-plan-may-mean-for-your-wallet.html%23:~:text%3D%2522It%27s%2520bad%2520for%2520consumers%252C%2522,growth%252C%2520on%2520a%2520net%2520basis.&ved=2ahUKEwjWhrG3oc2JAxWeQzABHWNJFboQFnoECE8QBQ&usg=AOvVaw0OOz1QLUMZuZmqKJsKlNZ_
https://www.msn.com/en-us/money/markets/biden-slammed-trump-tariffs-but-kept-some-why-experts-worry-about-new-ones/ar-AA1tPftn?ocid=msedgdhp&pc=U531&cvid=dce41c0d24c5436394908a801a072eff&ei=8
https://www.brookings.edu/articles/tariffs-on-all-imports-would-create-chaos-for-business/